Decentralization of DAOs: A Fundamental Analysis

This paper addresses a significant gap in the current understanding of decentralization within Decentralized Autonomous Organizations (DAOs). While many theoretical discussions generalize governance models, there is a lack of in-depth analysis of the unique governance structures and their inherent decentralization mechanisms in individual DAOs. To bridge this gap, the paper presents two primary contributions. First, it offers a foundational analysis of potential points of failure in decentralization within DAOs. Second, the study introduces a “decentralization layer system”, a new framework aimed at guiding future quantitative analyses of decentralization. This system is based on two pillars: a critical evaluation of governance structures and a stratification approach to identify distinct layers within these structures. The paper further demonstrates the application of this framework by analyzing the governance models of several DAOs, including Uniswap, Compound, and ApeCoin. Through these analyses, the paper provides insights into the strengths and vulnerabilities of each DAO’s decentralization mechanisms, offering a comprehensive perspective on DAO governance.